Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the section entitled “Risk Factors.” Unless otherwise indicated, the terms “Beachbody,” “we,” “us,” or “our” refer to The Beachbody Company, Inc., a Delaware corporation, together with its consolidated subsidiaries.
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act), including statements about and the financial condition, results of operations, earnings outlook and prospects of the Company. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements are based on our current expectations as applicable and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to the following:
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses including changes in selling and marketing, general and administrative expenses (including any components of the foregoing), Adjusted EBITDA (as defined below) and our ability to achieve and maintain future profitability;
our anticipated growth rate and market opportunity;
our ability to raise financing in the future;
our success in retaining or recruiting, or changes required in, officers, key employees or directors;
our warrants are accounted for as liabilities and changes in the value of such warrants could have a material effect on our financial results;
our ability to effectively compete in the fitness and nutrition industries;
our ability to successfully acquire and integrate new operations;
our reliance on a few key products;
market conditions and global and economic factors beyond our control;
intense competition and competitive pressures from other companies worldwide in the industries in which we will operate;
litigation and the ability to adequately protect our intellectual property rights;
costs related to the Business Combination and the failure to realize anticipated benefits of the Business Combination or to realize any financial projections or estimated pro forma results and the related underlying assumptions; and
other risk and uncertainties set forth in this Report under the heading “Risk Factors.”
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.
Overview of Our Business
We are the creator of some of the world’s most popular fitness programs, including P90X®, Insanity® and 21 Day Fix®, which transformed the in-home fitness market and disrupted the global fitness industry by making it accessible for people to get results—anytime, anywhere. We have also developed comprehensive nutrition-first programs, Portion Fix® and 2B Mindset®, which teach
32
healthy eating habits and promote healthy, sustainable weight loss. All fitness and nutrition programs are available through our Beachbody On Demand ® streaming service. In addition, we offer nutritionals such as Shakeology® nutrition shakes and BEACHBAR® snack bars.
In the health, wellness and fitness industry, we focus primarily on digital content, connected fitness and consumer health & wellness. Our goal is to continue to provide leading holistic health and wellness content and subscription-based solutions. Leveraging our history of fitness content creation and our network of micro-influencers, whom we call Coaches, we have been successful in identifying market trends and expanding our market share. With our 2021 expansion into connected fitness, through the integration of Myx’s professional grade stationery cycle and 360-degree touch screen tablet connected fitness software, weights, and accessories, we plan to leverage our distribution, marketing and content creation capabilities to reach a wider health, wellness and fitness audience.
Historically, our revenue has primarily been generated through a network of micro-influencers, social media marketing channels and direct response advertising. Components of revenue include recurring digital subscription revenue and revenue from the sale of nutritional and other products. In addition to selling individual products on a one-time basis, we also bundle fitness and nutrition products together at discounted prices.
On June 25, 2021 we consummated the Business Combination by and among Forest Road, Old Beachbody and Myx. The Business Combination resulted in cash proceeds, net of issuance costs and cash paid for the acquisition of Myx, net of cash acquired of approximately $351.8. In addition it drove increases of $78.1 million in intangible assets and $157.9 million in goodwill as of September 30, 2021, compared to our balance sheet as of December 31, 2020. The following financial information for the three months and nine months ended September 30, 2021 includes the financial information and activities for Myx for the period from June 26, 2021 to September 30, 2021.
For the three months ended September 30, 2021, as compared to the three months ended September 30, 2020:
Total revenue was $208.1 million, a 17% decrease;
Digital revenue was $94.1 million, a 5% decrease;
Connected fitness revenue was $5.9 million;
Nutrition and other revenue was $108.1 million, a 29% decrease;
Net loss was $39.9 million, compared to net income of $13.8 million; and
Adjusted EBITDA was ($43.4) million, compared to $31.4 million.
For the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020:
Total revenue was $657.4 million, a 3% increase;
Digital revenue was $283.5 million, an 18% increase;
Connected fitness revenue was $5.9 million;
Nutrition and other revenue was $367.9 million, an 8% decrease;
Net loss was $82.4 million, compared to a net loss of $4.6 million; and
Adjusted EBITDA was ($59.5) million, compared to $34.9 million.
For a definition of digital subscriptions see the section titled “—Key Operational and Business Metrics.”
See the section titled “—Non-GAAP Information” for information regarding our use of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.
Impact of COVID-19
The novel coronavirus continues to have a significant impact on most businesses, including Beachbody. During the year ended December 31, 2020, we saw strong demand for our digital subscriptions as the government ordered closures and restrictions on gyms and as consumers were reluctant to return to gyms as the COVID-19 pandemic continued. We also experienced modestly slower product fulfillment to customers and supply chain delays. During the second and third quarters of 2021, the pandemic has resulted in higher shipping, freight, and fulfillment costs and the cancellation of certain Coach events.
33
The ultimate impact of COVID-19 on our financial and operating results is unknown and will depend on the length of time that these restrictions continue and whether the demand for many of our digital subscriptions continue. COVID-19 has had a significant impact and may continue to have a significant impact, the full extent of which is unknown, but which could be material. Although COVID-19 increased consumer demand for our digital solutions, we believe the structural shift towards wellness and fitness solutions like our platform existed before the impact of COVID-19, and we anticipate that this structural change to the fitness industry will continue after COVID-19.
Beachbody has business continuity programs in place to ensure that employees are safe and that the businesses continue to function while employees are working remotely. We have been closely monitoring the impact of working from home and the potential strain on internet connectivity but have not seen any adverse impact on the ability of the businesses to function and we have not seen any network connectivity issues that would have an adverse impact on our customers’ ability to access our product offerings.
Non-GAAP Information
This Report includes Adjusted EBITDA, which is a non-GAAP performance measure that we use to supplement our results presented in accordance with GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, as it is similar to measures reported by our public competitors and is regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.
We define and calculate Adjusted EBITDA as net income (loss) adjusted for depreciation and amortization, amortization of capitalized cloud computing implementation costs, amortization of content assets, interest expense, income taxes, equity-based compensation, and other items that are not normal, recurring, operating expenses necessary to operate the Company’s business as described in the reconciliation below.
We include this non-GAAP financial measure because it is used by management to evaluate Beachbody’s core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-cash (for example, in the case of depreciation and amortization, equity-based compensation) or are not related to our underlying business performance (for example, in the case of interest income and expense).
The table below presents our Adjusted EBITDA reconciled to our net income (loss), the closest GAAP measure, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Net income (loss)
|
|
$
|
(39,922
|
)
|
|
$
|
13,771
|
|
|
$
|
(82,420
|
)
|
|
$
|
(4,560
|
)
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,616
|
|
|
|
11,203
|
|
|
|
40,557
|
|
|
|
31,881
|
|
|
Amortization of capitalized cloud computing implementation costs
|
|
|
168
|
|
|
|
—
|
|
|
|
504
|
|
|
|
—
|
|
|
Amortization of content assets
|
|
|
3,889
|
|
|
|
1,907
|
|
|
|
10,008
|
|
|
|
5,103
|
|
|
Interest expense
|
|
|
62
|
|
|
|
89
|
|
|
|
490
|
|
|
|
432
|
|
|
Income tax (benefit) provision
|
|
|
(1,487
|
)
|
|
|
4,129
|
|
|
|
(12,739
|
)
|
|
|
(161
|
)
|
|
Equity-based compensation
|
|
|
5,744
|
|
|
|
1,261
|
|
|
|
10,839
|
|
|
|
3,169
|
|
|
Transaction costs
|
|
|
677
|
|
|
|
612
|
|
|
|
2,819
|
|
|
|
612
|
|
|
Restructuring gain
|
|
|
—
|
|
|
|
(1,677
|
)
|
|
|
—
|
|
|
|
(1,677
|
)
|
|
Change in fair value of warrant liabilities
|
|
|
(30,274
|
)
|
|
|
—
|
|
|
|
(35,664
|
)
|
|
|
—
|
|
|
Other adjustment items (1)
|
|
|
3,044
|
|
|
|
—
|
|
|
|
9,082
|
|
|
|
—
|
|
|
Non-operating items (2)
|
|
|
71
|
|
|
|
77
|
|
|
|
(3,017
|
)
|
|
|
131
|
|
|
Adjusted EBITDA
|
|
$
|
(43,412
|
)
|
|
$
|
31,372
|
|
|
$
|
(59,541
|
)
|
|
$
|
34,930
|
|
(1)
Other adjustment items includes incremental costs associated with COVID-19.
(2)
Non-operating primarily includes interest income and gain on investment on the Myx convertible instrument.
34
Key Operational and Business Metrics
In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Digital Subscriptions (millions)
|
|
|
2.64
|
|
|
|
2.61
|
|
|
Nutritional Subscriptions (millions)
|
|
|
0.34
|
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Average Digital Retention
|
|
|
95.6
|
%
|
|
|
95.1
|
%
|
|
|
95.5
|
%
|
|
|
95.4
|
%
|
|
Total Streams (millions)
|
|
|
35.9
|
|
|
|
48.5
|
|
|
|
136.4
|
|
|
|
137.2
|
|
|
DAU/MAU
|
|
|
29.6
|
%
|
|
|
32.1
|
%
|
|
|
32.1
|
%
|
|
|
31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (millions)
|
|
$
|
208.1
|
|
|
$
|
251.5
|
|
|
$
|
657.4
|
|
|
$
|
639.3
|
|
|
Gross profit (millions)
|
|
$
|
135.0
|
|
|
$
|
180.6
|
|
|
$
|
447.4
|
|
|
$
|
460.1
|
|
|
Gross margin
|
|
|
65
|
%
|
|
|
72
|
%
|
|
|
68
|
%
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (millions)
|
|
$
|
(39.9
|
)
|
|
$
|
13.8
|
|
|
$
|
(82.4
|
)
|
|
$
|
(4.6
|
)
|
|
Adjusted EBITDA (millions) (1)
|
|
$
|
(43.4
|
)
|
|
$
|
31.4
|
|
|
$
|
(59.5
|
)
|
|
$
|
34.9
|
|
(1)
Please see the section titled “—Non-GAAP Information” for a reconciliation of net loss to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors.
Digital Subscriptions
Our ability to expand the number of digital subscriptions is an indicator of our market penetration and growth. Digital subscriptions include Beachbody On Demand, Nutrition+, and Openfit subscriptions. Digital subscriptions include paid and free-to-pay subscriptions. Free-to-pay subscriptions, on average, represent less than 2% of total digital subscriptions. Digital subscriptions are inclusive of all billing plans, currently for annual, semi-annual, quarterly and monthly billing intervals.
Nutritional Subscriptions
We package and synthesize the content experience of digital subscriptions with nutritional subscriptions that work together. Nutritional Subscriptions are monthly subscriptions to nutritional products such as, Shakeology, Beachbody Performance, BEACHBAR, Bevvy and Ladder Supplements.
Average Digital Retention
We use month over month digital subscription retention to measure the retention of our digital subscriptions. We define digital subscription retention as the average rate at which a subscription renews for a new billing cycle.
Total Streams
We measure streams and total streams to quantify the number of fitness or nutrition programs viewed per subscription which is a leading indicator of customer engagement and retention. While the measure of a digital stream may vary across companies, to qualify as a stream on either our Beachbody on Demand or Openfit platforms, a program must be viewed for a minimum of 25% of the total running time.
35
Daily Active Users to Monthly Active Users (DAU/MAU)
We use the ratio of daily active users to monthly active users to measure how frequently digital subscribers are utilizing our service in a given month. We define a daily active user as a unique user streaming content on our platform in a given day. We define a monthly active user as a unique user streaming content on our platform in that same month.
Components of our Operating Results and Results of Operations
We operate and manage our business in two operating segments, Beachbody and Other. For financial reporting purposes, we have one reportable segment, Beachbody. We identified the reportable segment based on the information used by management to monitor performance and make operating decisions. See Notes 1 and 22 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Report for additional information regarding our reportable segment. The following discussion of our results and operations is on a consolidated basis as the Other non-reportable operating segment is not material to the understanding of our business taken as a whole.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
94,072
|
|
|
$
|
99,082
|
|
|
$
|
283,547
|
|
|
$
|
239,964
|
|
|
Connected fitness
|
|
|
5,927
|
|
|
|
—
|
|
|
|
5,937
|
|
|
|
—
|
|
|
Nutrition and other
|
|
|
108,053
|
|
|
|
152,397
|
|
|
|
367,895
|
|
|
|
399,335
|
|
|
Total revenue
|
|
|
208,052
|
|
|
|
251,479
|
|
|
|
657,379
|
|
|
|
639,299
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
12,124
|
|
|
|
9,843
|
|
|
|
34,858
|
|
|
|
27,507
|
|
|
Connected fitness
|
|
|
10,261
|
|
|
|
—
|
|
|
|
10,417
|
|
|
|
—
|
|
|
Nutrition and other
|
|
|
50,682
|
|
|
|
61,082
|
|
|
|
164,679
|
|
|
|
151,654
|
|
|
Total cost of revenue
|
|
|
73,067
|
|
|
|
70,925
|
|
|
|
209,954
|
|
|
|
179,161
|
|
|
Gross profit
|
|
|
134,985
|
|
|
|
180,554
|
|
|
|
447,425
|
|
|
|
460,138
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
153,782
|
|
|
|
123,980
|
|
|
|
438,672
|
|
|
|
352,872
|
|
|
Enterprise technology and development
|
|
|
29,680
|
|
|
|
23,852
|
|
|
|
83,718
|
|
|
|
67,558
|
|
|
General and administrative
|
|
|
23,346
|
|
|
|
16,523
|
|
|
|
58,523
|
|
|
|
46,229
|
|
|
Restructuring gain
|
|
|
—
|
|
|
|
(1,677
|
)
|
|
|
—
|
|
|
|
(1,677
|
)
|
|
Total operating expenses
|
|
|
206,808
|
|
|
|
162,678
|
|
|
|
580,913
|
|
|
|
464,982
|
|
|
Operating income (loss)
|
|
|
(71,823
|
)
|
|
|
17,876
|
|
|
|
(133,488
|
)
|
|
|
(4,844
|
)
|
|
Change in fair value of warrant liabilities
|
|
|
30,274
|
|
|
|
—
|
|
|
|
35,664
|
|
|
|
—
|
|
|
Interest expense
|
|
|
(62
|
)
|
|
|
(89
|
)
|
|
|
(490
|
)
|
|
|
(432
|
)
|
|
Other income, net
|
|
|
202
|
|
|
|
113
|
|
|
|
3,155
|
|
|
|
555
|
|
|
Income (loss) before income taxes
|
|
|
(41,409
|
)
|
|
|
17,900
|
|
|
|
(95,159
|
)
|
|
|
(4,721
|
)
|
|
Income tax benefit (provision)
|
|
|
1,487
|
|
|
|
(4,129
|
)
|
|
|
12,739
|
|
|
|
161
|
|
|
Net income (loss)
|
|
$
|
(39,922
|
)
|
|
$
|
13,771
|
|
|
$
|
(82,420
|
)
|
|
$
|
(4,560
|
)
|
Revenue
Revenue includes digital subscriptions, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products and other fitness-related products. Subscription revenue is recognized ratably over the subscription period (up to 12 months). We often sell bundled products that combine digital subscriptions, nutritional products, and/or other fitness and nutritional programs. We consider these sales to be revenue arrangements with multiple performance obligations and allocate the transaction price to each performance
36
obligation based on its relative stand-alone selling price. We defer revenue when we receive payments in advance of delivery of products or the performance of services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
94,072
|
|
|
$
|
99,082
|
|
|
$
|
(5,010
|
)
|
|
(5%)
|
|
|
Connected fitness
|
|
|
5,927
|
|
|
|
—
|
|
|
|
5,927
|
|
|
|
—
|
|
|
Nutrition and other
|
|
|
108,053
|
|
|
|
152,397
|
|
|
|
(44,344
|
)
|
|
(29%)
|
|
|
Total revenue
|
|
$
|
208,052
|
|
|
$
|
251,479
|
|
|
$
|
(43,427
|
)
|
|
(17%)
|
|
The decrease in digital revenue for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to lower growth in our digital subscriptions as the demand for at-home fitness slowed.
The increase in connected fitness revenue for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was due to the acquisition of Myx in June 2021.
The decrease in nutrition and other revenue for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to a $33.6 million decrease in revenue from nutritionals primarily driven by the decrease in nutritional subscriptions and lower customer acquisition and a $4.3 million decrease in shipping revenue due to a sales composition shift from nutritional to digital.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
283,547
|
|
|
$
|
239,964
|
|
|
$
|
43,583
|
|
|
|
18
|
%
|
|
Connected fitness
|
|
|
5,937
|
|
|
|
—
|
|
|
|
5,937
|
|
|
|
—
|
|
|
Nutrition and other
|
|
|
367,895
|
|
|
|
399,335
|
|
|
|
(31,440
|
)
|
|
(8%)
|
|
|
Total revenue
|
|
$
|
657,379
|
|
|
$
|
639,299
|
|
|
$
|
18,080
|
|
|
|
3
|
%
|
The increase in digital revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily attributable to year-over-year growth in digital subscriptions during the first half of 2021.
The increase in connected fitness revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was due to the acquisition of Myx in June 2021.
The decrease in nutrition and other revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to the decrease in revenue from nutritionals as a result of lower demand experienced during the third quarter of 2021.
Cost of Revenue
Digital Cost of Revenue
Digital cost of revenue includes costs associated with digital content creation including amortization and revisions of content assets, depreciation of streaming platforms and e-commerce websites, digital streaming costs, and amortization of acquired digital platform intangible assets. It also includes customer service costs, credit card processing fees, depreciation of production equipment, live trainer costs, facilities, and related personnel expenses.
Connected Fitness Cost of Revenue
Connected Fitness cost of revenue consists of product costs, including hardware costs, duties and other applicable importing costs, shipping and handling costs, warehousing and logistics costs, costs associated with service calls and repairs of the product under
37
warranty, payment processing and financing fees, customer service expenses, and personnel-related expenses associated with supply chain and logistics.
Nutrition and Other Cost of Revenue
Nutrition and other cost of revenue includes product costs, shipping and handling, fulfillment and warehousing, customer service, and credit card processing fees. It also includes depreciation of nutrition-related e-commerce websites and social commerce platforms, amortization of acquired formulae intangible assets, facilities, and related personnel expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
12,124
|
|
|
$
|
9,843
|
|
|
$
|
2,281
|
|
|
|
23
|
%
|
|
Connected fitness
|
|
|
10,261
|
|
|
|
—
|
|
|
|
10,261
|
|
|
|
—
|
|
|
Nutrition and other
|
|
|
50,682
|
|
|
|
61,082
|
|
|
|
(10,400
|
)
|
|
(17%)
|
|
|
Total cost of revenue
|
|
$
|
73,067
|
|
|
$
|
70,925
|
|
|
$
|
2,142
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
81,948
|
|
|
$
|
89,239
|
|
|
$
|
(7,291
|
)
|
|
(8%)
|
|
|
Connected fitness
|
|
|
(4,334
|
)
|
|
|
—
|
|
|
|
(4,334
|
)
|
|
|
—
|
|
|
Nutrition and other
|
|
|
57,371
|
|
|
|
91,315
|
|
|
|
(33,944
|
)
|
|
(37%)
|
|
|
Total gross profit
|
|
$
|
134,985
|
|
|
$
|
180,554
|
|
|
$
|
(45,569
|
)
|
|
(25%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
87
|
%
|
|
|
90
|
%
|
|
|
|
|
|
|
|
Connected fitness
|
|
|
(73
|
%)
|
|
|
—
|
|
|
|
|
|
|
|
|
Nutrition and other
|
|
|
53
|
%
|
|
|
60
|
%
|
|
|
|
|
|
|
The increase in digital cost of revenue for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily driven by a $2.0 million increase in content assets amortization due to a content asset library (new and existing content) with higher costs being amortized during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The digital gross margin was lower for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to higher content assets amortization and higher customer service expenses as more contacts were related to digital products, partially offset by lower credit card processing as we achieved rate-reducing initiatives.
The increase in connected fitness cost of revenue for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily driven by the acquisition of Myx in June 2021.
The decrease in nutrition and other cost of revenue for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to a $8.7 million decrease in product costs, $2.1 million decrease in shipping costs, and $0.6 million decrease in customer service expense as the result of lower nutrition and other revenue. These decreases were partially offset by a $1.1 million increase in freight and fulfillment expense. Despite the decrease in product costs, shipping and customer service costs, nutrition and other gross margin decreased as a result of a higher reserve for excess and obsolete inventory, higher
38
freight and shipping rates due to COVID-19, and the deleveraging of fixed costs such as depreciation and personnel-related expenses on lower revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
34,858
|
|
|
$
|
27,507
|
|
|
$
|
7,351
|
|
|
|
27
|
%
|
|
Connected fitness
|
|
|
10,417
|
|
|
|
—
|
|
|
|
10,417
|
|
|
|
—
|
|
|
Nutrition and other
|
|
|
164,679
|
|
|
|
151,654
|
|
|
|
13,025
|
|
|
|
9
|
%
|
|
Total cost of revenue
|
|
$
|
209,954
|
|
|
$
|
179,161
|
|
|
$
|
30,793
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
$
|
248,689
|
|
|
$
|
212,457
|
|
|
$
|
36,232
|
|
|
|
17
|
%
|
|
Connected fitness
|
|
|
(4,480
|
)
|
|
|
—
|
|
|
|
(4,480
|
)
|
|
|
—
|
|
|
Nutrition and other
|
|
|
203,216
|
|
|
|
247,681
|
|
|
|
(44,465
|
)
|
|
(18%)
|
|
|
Total gross profit
|
|
$
|
447,425
|
|
|
$
|
460,138
|
|
|
$
|
(12,713
|
)
|
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
88
|
%
|
|
|
89
|
%
|
|
|
|
|
|
|
|
Connected fitness
|
|
|
(75
|
%)
|
|
|
—
|
|
|
|
|
|
|
|
|
Nutrition and other
|
|
|
55
|
%
|
|
|
62
|
%
|
|
|
|
|
|
|
The increase in digital cost of revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily driven by a $4.9 million increase in content assets amortization due to a content asset library (new and existing content) with higher costs being amortized during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Additional customer service expense of $1.0 million, depreciation of $0.9 million, credit card processing expense of $0.5 million, and Openfit live training costs of $0.2 million were attributable to the increase in revenue. The slight decrease in digital gross margin from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 was primarily due to higher program amortization, partially offset by lower streaming costs and lower credit card processing due to rate-reducing initiatives.
The increase in connected fitness cost of revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily driven by the acquisition of Myx in June 2021.
The increase in nutrition and other cost of revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was due to a $5.7 million increase in product costs, $3.2 million increase in shipping costs, $1.7 million increase in depreciation, $1.5 million increase in fulfillment, and $1.1 million in personnel-related expenses. Nutrition and other gross margin decreased during the nine months ended September 30, 2021 as a result of higher freight and shipping rates, a higher reserve for excess and obsolete inventory, and increases in personnel-related costs and depreciation expense for which there is no commensurate revenue.
Operating Expenses
Selling and Marketing
Selling and marketing expenses primarily include the cost of micro-influencer compensation, advertising, royalties, content revisions, promotions and events, and third-party sales commissions as well as the related personnel expenses for employees and consultants.
39
We intend to continue to invest in our selling and marketing capabilities and expect this expense to increase in future periods as we release new products and expand internationally. Selling and marketing expense as a percentage of total revenue may fluctuate from period to period based on total revenue and the timing of our media investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Selling and marketing
|
|
$
|
153,782
|
|
|
$
|
123,980
|
|
|
$
|
29,802
|
|
|
|
24
|
%
|
|
As a percentage of total revenue
|
|
|
73.9
|
%
|
|
|
49.3
|
%
|
|
|
|
|
|
|
The increase in selling and marketing expense for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due an increase in television media and online advertising expenses in line with our strategic focus to invest in building brand awareness and driving customer acquisition.
Selling and marketing expense increased, as a percentage of total revenue, due to increased media investments which were less effective at acquiring new customers as compared to the three months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Selling and marketing
|
|
$
|
438,672
|
|
|
$
|
352,872
|
|
|
$
|
85,800
|
|
|
|
24
|
%
|
|
As a percentage of total revenue
|
|
|
66.7
|
%
|
|
|
55.2
|
%
|
|
|
|
|
|
|
The increase in selling and marketing expense for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to a $54.8 million increase in media costs to build awareness and customer acquisition. Additional increases were $16.9 million in expenses for personnel and systems that support customer acquisition activities, $4.4 million in Coach events expenses, $3.1 million in intangible assets amortization, $2.6 million in production of marketing materials, and $0.9 million in royalties.
Selling and marketing expense increased, as a percentage of total revenue, primarily due to increased media investments on lower revenue.
Enterprise Technology and Development
Enterprise technology and development expenses relate primarily to enterprise systems applications, hardware and software that serve as the technology infrastructure for the Company and are not directly related to services provided or tangible goods sold. This includes maintenance and enhancements of the Company’s enterprise resource planning (ERP) system, which is the core of our accounting, procurement, supply chain and other business support systems. Enterprise technology and development also includes reporting and business analytics tools, security systems such as identity management and payment card industry compliance, office productivity software, research and development tracking tools, and other non—customer facing applications. Enterprise technology and development expenses include personnel-related expenses for employees and consultants who create improvements to and maintain technology systems and are involved in the research and development of new and existing nutritional products, depreciation of enterprise technology-related assets, software licenses, hosting expenses, and technology equipment leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Enterprise technology and development
|
|
$
|
29,680
|
|
|
$
|
23,852
|
|
|
$
|
5,828
|
|
|
|
24
|
%
|
|
As a percentage of total revenue
|
|
|
14.3
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
The increase in enterprise technology and development expense for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to an increase in personnel and enterprise systems-related expenses.
40
Enterprise technology and development expense as a percentage of total revenue increased by 480 basis points due to the deleveraging of fixed costs, such as personnel-related expense and depreciation, on lower revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Enterprise technology and development
|
|
$
|
83,718
|
|
|
$
|
67,558
|
|
|
$
|
16,160
|
|
|
|
24
|
%
|
|
As a percentage of total revenue
|
|
|
12.7
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
The increase in enterprise technology and development expense for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to a $13.0 million increase in personnel-related expenses and a $3.1 million increase in depreciation expense. Enterprise technology and development expense as a percentage of total revenue increased by 210 basis points due to the deleveraging of fixed costs, such as personnel-related expense and depreciation, on lower revenue.
General and Administrative
General and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal and human resources functions. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax, and insurance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
General and administrative
|
|
$
|
23,346
|
|
|
$
|
16,523
|
|
|
$
|
6,823
|
|
|
|
41
|
%
|
|
As a percentage of total revenue
|
|
|
11.2
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
The increase in general and administrative expense for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to increases in personnel-related expenses and other general corporate expenses, including additional expenses as a result of operating as a public company. General and administrative expense as a percentage of total revenue increased by 460 basis points due to the deleveraging of costs on lower revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
General and administrative
|
|
$
|
58,523
|
|
|
$
|
46,229
|
|
|
$
|
12,294
|
|
|
|
27
|
%
|
|
As a percentage of total revenue
|
|
|
8.9
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
The increase in general and administrative expense for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to increases in transaction costs related to the Business Combination, personnel-related expenses, and other general corporate expenses. General and administrative expense as a percentage of total revenue increased by 170 basis points primarily due to the deleveraging of transaction costs on lower revenue.
Restructuring
Restructuring charges relates to our 2017 and 2018 restructuring plans, which were initiated to realign business priorities and optimize operations to maximize digital subscription scale and growth. The charges incurred primarily relate to lease termination adjustments and employee-related costs, with the restructuring benefit related to lower final lease termination expenses compared to initial estimates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Restructuring gain
|
|
$
|
—
|
|
|
$
|
(1,677
|
)
|
|
$
|
1,677
|
|
|
(100%)
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Restructuring gain
|
|
$
|
—
|
|
|
$
|
(1,677
|
)
|
|
$
|
1,677
|
|
|
(100%)
|
Restructuring gain for the three and nine months ended September 30, 2020 reflect adjustments to the estimated liability associated with the 2017 restructuring lease terminations.
Other Income (Expenses)
The change in fair value of warrant liabilities consists of the fair value changes of the Public Warrants and Private Warrants and the transaction costs and advisory fees for the Business Combination allocated to the warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt issuance costs for our Credit Facility. Other income, net, consists of interest income earned on investments and gains (losses) on foreign currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
$
|
30,274
|
|
|
$
|
—
|
|
|
$
|
30,274
|
|
|
|
—
|
|
|
Interest expense
|
|
|
(62
|
)
|
|
|
(89
|
)
|
|
|
27
|
|
|
|
30
|
%
|
|
Other income, net
|
|
|
202
|
|
|
|
113
|
|
|
|
89
|
|
|
|
79
|
%
|
The change in fair value of warrant liabilities of $30.3 million during the three months ended September 30, 2021 primarily resulted from the decrease in our stock price during the third quarter of 2021. The decrease in interest expense for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to lower lease-related interest expense. The increase in other income, net was primarily due to foreign exchange rate fluctuations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
$
|
35,664
|
|
|
$
|
—
|
|
|
$
|
35,664
|
|
|
|
—
|
|
|
Interest expense
|
|
|
(490
|
)
|
|
|
(432
|
)
|
|
|
(58
|
)
|
|
|
-13
|
%
|
|
Other income, net
|
|
|
3,155
|
|
|
|
555
|
|
|
|
2,600
|
|
|
|
468
|
%
|
The change in fair value of warrant liabilities of $35.7 million during the nine months ended September 30, 2021 primarily resulted from the decrease in our stock price following consummation of the Business Combination on June 25, 2021, partially offset by the transaction costs and advisory fees for the Business Combination allocated to the warrants. The increase in interest expense for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to higher outstanding borrowings and for a longer period in 2021 compared to 2020. The increase in other income, net was primarily due to the gain on the investment in the convertible instrument from Myx prior to June 25, 2021; there was no similar investment during the nine months ended September 30, 2020.
Income Tax Benefit (Provision)
Income tax benefit (provision) consists of income taxes related to US federal and state jurisdictions as well as those foreign jurisdictions where we have business operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
$
|
1,487
|
|
|
$
|
(4,129
|
)
|
|
$
|
5,616
|
|
|
|
136
|
%
|
42
The income tax benefit during the three months ended September 30, 2021, as compared to the income tax provision during the three months ended September 30, 2020 was primarily due to a loss position in the third quarter of 2021 compared to a taxable income position in the third quarter of 2020. The effective benefit tax rate for the three months ended September 30, 2021 was 3.6% and differed from the federal statutory rate primarily because of valuation allowances and an increase in net benefits from discrete events. The effective tax rate for the three months ended September 30, 2020 was 23.1% and differed from the federal statutory rate primarily because of additional expense from discrete events.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
$
|
12,739
|
|
|
$
|
161
|
|
|
$
|
12,578
|
|
|
|
7812
|
%
|
The increase in income tax benefit for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to the increase in net benefits from discrete events, primarily related to the acquisition of Myx. The effective benefit tax rate was 13.4% for the nine months ended September 30, 2021 and 3.4% for the nine months ended September 20, 2020. The increase in the effective benefit tax rate was primarily related to the increase in net benefits from discrete events, partially offset by an increase in valuation allowances.
Liquidity and Capital Resources
Historically, our operations were financed primarily through cash flow from operating activities and borrowings under our Credit Facility. In connection with the Business Combination, we received cash proceeds, net of issuance costs and cash paid for the acquisition of Myx, net of cash acquired of approximately $351.8 million. As of September 30, 2021, we had cash and cash equivalents of $199.8 million and $32.0 million of borrowing capacity available under our Credit Facility (defined below).
We believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of growth initiatives, the expansion of selling and marketing activities, the timing of new nutrition product introductions, market acceptance of our nutrition products, and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.
Amended and Restated Credit Agreement
On December 14, 2018, Beachbody, LLC, as borrower, and Old Beachbody and certain of Beachbody, LLC’s subsidiaries, as guarantors, entered into a credit agreement with Bank of America, N.A., as lender, administrative agent and letter of credit issuer for a $35 million revolving credit facility with a $10 million sublimit for letters of credit (the “Credit Facility”). During the nine months ended September 30, 2021, the Credit Facility was amended to revise certain financial covenants, to extend the maturity date to June 2022, and temporarily increase the Credit Facility by $20 million for a period of either 90 days, or until the consummation of the Business Combination.
In connection with the transactions contemplated by the Business Combination Agreement, on June 23, 2021, the Credit Facility was amended, which, among other things, (a) permits the consummation of the Business Combination and certain other transactions contemplated by the Business Combination Agreement, and (b) amends certain terms of the Credit Facility to, among other things, (i) enable Old Beachbody and Beachbody, LLC to consummate the Business Combination and certain other transactions contemplated by the Business Combination Agreement, (ii) require that the Company join the Credit Facility as a parent guarantor thereunder, and (iii) require that Myx join the Credit Facility as a subsidiary guarantor thereunder.
As of September 30, 2021 and December 31, 2020, we had no borrowings outstanding under the Credit Facility and a letter of credit was issued for $3.0 million. Borrowings may be either Bloomberg Short-Term Bank Yield Index (“BSBY”) rate loans or base rate loans at our election. BSBY rate loans bear interest at an annual rate equal to the BSBY Rate plus 1.75% to 2.25%, with a minimum
43
BSBY of 0.75%. Base rate loans are at the base rate, as defined in the Credit Facility, plus 0.75% to 1.25%. We also pay a 1.75% to 2.25% fee on the letters of credit outstanding and a 0.375% to 0.5% commitment fee on the unused Credit Facility.
In November 2021, the Company terminated the Credit Facility and will maintain a compensating cash balance for the $3.0 million letter of credit.
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(dollars in thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(139,259
|
)
|
|
$
|
72,340
|
|
|
Net cash used in investing activities
|
|
|
(108,345
|
)
|
|
|
(26,860
|
)
|
|
Net cash provided by financing activities
|
|
|
390,448
|
|
|
|
—
|
|
Operating Activities. Net cash used in operating activities of $139.3 million for the nine months ended September 30, 2021 was primarily due to the net loss of $82.4 million and the net change in operating assets and liabilities of $71.2 million, partially offset by non-cash adjustments of $14.4 million. Non-cash adjustments primarily consisted of depreciation and amortization of $40.6 million, change in fair value of warrant liabilities of ($35.7) million, deferred income taxes of ($13.0) million, equity-based compensation of $10.8 million, and amortization of content assets of $10.0 million. The change in net operating assets and liabilities was primarily due to a $68.8 million increase in inventory, $22.0 million increase in content assets, and a $5.6 million increase in other assets; partially offset by a $27.1 million increase in deferred revenue as a result of the increase in digital subscriptions and connected fitness hardware sold but not yet delivered.
Net cash provided by operating activities of $72.3 million for the nine months ended September 30, 2020 was primarily due to the net change in operating assets and liabilities of $35.2 million and non-cash adjustments of $41.7 million, partially offset by the net loss of $4.6 million. The increase in net operating assets and liabilities was primarily due to a $41.8 million increase in deferred revenue as a result of an increase in digital subscriptions, $29.0 million increase in accounts payable and accrued expenses related to increased expenditures to support general business growth; partially offset by a $17.5 million increase in inventory as a result of building up nutritional products and accessories, a $9.9 million increase in content assets and an increase other assets driven by general growth. Non-cash adjustments primarily consisted of depreciation and amortization of $31.9 million, amortization of content assets of $5.1 million, and equity-based compensation expense of $3.2 million.
Investing Activities. Net used in investing activities for the nine months ended September 30, 2021 of $108.3 million was related to $37.3 cash consideration for the acquisition of Myx, net of cash acquired, capital expenditures of $61.1 million, the investment in a convertible instrument of $5.0 million, and an equity investment of $5.0 million.
Net cash used in investing activities for the nine months ended September 30, 2020 of $26.9 million was related to capital expenditures, partially offset by cash acquired through the acquisition of Ladder.
Financing Activities. Net cash provided by financing activities of $390.4 million for the nine months ended September 30, 2021 was primarily related to the $389.1 million in net proceeds received from the Business Combination and $1.3 million of proceeds from stock option exercises, net of tax withholdings.
Net cash provided by financing activities was $0 for the nine months ended September 30, 2020. Gross borrowings and repayments under the Credit Facility were $32.0 million.
44
Contractual Obligations and Other Commitments
The following table summarizes our contractual cash obligations as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than
5 Years
|
|
|
|
|
(in thousands)
|
|
|
Operating lease obligations
|
|
$
|
36,857
|
|
|
$
|
1,278
|
|
|
$
|
22,963
|
|
|
$
|
12,616
|
|
|
$
|
—
|
|
|
Finance lease obligations
|
|
|
327
|
|
|
|
40
|
|
|
|
284
|
|
|
|
3
|
|
|
|
—
|
|
|
Noncancelable service and inventory
purchase obligations
|
|
|
79,544
|
|
|
|
58,646
|
|
|
|
18,398
|
|
|
|
2,500
|
|
|
|
—
|
|
|
Total
|
|
$
|
116,728
|
|
|
$
|
59,964
|
|
|
$
|
41,645
|
|
|
$
|
15,119
|
|
|
$
|
—
|
|
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.
In November 2021, the Company entered into an agreement to assign the lease of its corporate headquarters to another party in January 2022. This assignment will result in a modification of the Company’s lease term and is expected to reduce right-of-use assets by $22.6 million and lease liabilities by $28.5 million and increase operating income by $2.7 million, which is net of brokers' commissions and accelerated depreciation of leasehold improvements and furniture, fixtures and equipment.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the unaudited condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions. The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include those noted below.
Revenue Recognition
We record revenue when we fulfill our performance obligation to transfer control of the goods or services to our customers. Control of shipped items is generally transferred when the product is delivered to the customer. The amount of revenue recognized is the consideration that we expect we will be entitled to receive in exchange for transferring goods or services to its customers. Control of services, which are primarily digital subscriptions, transfers over time, and as such, revenue is recognized ratably over the subscription period (up to 12 months), using a mid-month convention. We sell a variety of bundled products that combine digital subscriptions, nutritional products and/or other fitness products. We consider these sales to be revenue arrangements with multiple performance obligations and allocates the transaction price to each performance obligation based on its relative stand-alone selling price. We defer revenue when we receive payments in advance of delivery of products or the performance of services. Revenue is recorded net of expected returns, discounts and credit card chargebacks, which are estimated using our historical experience. Revenue is presented net of sales and value added taxes collected from customers and remitted to applicable government agencies.
Goodwill and Intangible Assets
Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the underlying identifiable assets and liabilities acquired in a business combination. Goodwill and intangible assets deemed to have an indefinite life are not amortized, but instead are assessed for impairment annually in the fourth quarter as of October 1. Additionally, if an event or change in circumstances occurs that would more likely than not reduce the fair value of the reporting unit below its carrying value, we would evaluate goodwill and other intangibles at that time.
45
In testing for goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. If we conclude otherwise, we are required to perform the two-step impairment test. The goodwill impairment test is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than the carrying value, an impairment charge will be recorded to reduce the reporting unit to fair value.
We also evaluate qualitative factors to determine whether or not its indefinite lived intangible assets have been impaired and then performs a quantitative test if required.
Intangible assets deemed to have finite lives are amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows.
Equity-Based Compensation
We measure and recognize expense for all equity-based awards based on their estimated fair values as of the grant date using the Black-Scholes option-pricing model. We recognize the expense on a straight-line basis over the requisite service period, and forfeitures are accounted for as they occur. Equity-based compensation expense is included in cost of revenue, selling and marketing, enterprise technology and development, and general and administrative expense within the unaudited condensed consolidated statements of operations.
Equity-based compensation expense for options granted to nonemployees is measured based on the fair value of the options issued, which is more reliably determined than the value of goods and services received. The fair value of the equity instruments issued is measured at the performance completion date.
Common Unit Valuations
Prior to the Business Combination, we granted common unit options at an exercise price equal to the fair value as determined by the Board of Managers on the date of grant. Given the absence of a public market for our common units, we were required to estimate the fair value of our common units at the time of each grant of an equity-based award. We utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of our common units. These estimates and assumptions include numerous objective and subjective factors to determine the fair value of our common units at each grant date, including the following factors:
Relevant precedent transaction including our capital units;
the liquidation preferences, rights, preferences, and privileges of our preferred units relative to the common units;
our actual operating and financial performance;
current business conditions and projections;
our stage of development;
the likelihood and timing of achieving a liquidity event for the common units underlying the options, such as an initial public offering, given prevailing market conditions; any adjustment necessary to recognize a lack of marketability of the common units underlying the granted options;
the market performance of comparable publicly traded companies; and
U.S. and global capital market conditions.
Subsequent to the Business Combination, the Board determines the fair value of the Common Stock based on the closing market price on or around the date of grant.
Income Taxes
Effective April 2, 2019, Old Beachbody made an election with the United States taxing authorities to change its entity status to a regarded C-Corporation from a regarded pass-through entity for income tax purposes. The consequences of this election were the
46
recognition of a tax provision on our net income earned after that date and the recording of a net deferred tax asset as of the election date of $16.6 million as a benefit for income taxes from operations. The accumulated deficit and other comprehensive loss as of the election date have been eliminated against common units and preferred units with the allocation determined in accordance with the terms of the Beachbody, LLC Operating Agreement.
We are subject to income taxes in the United States, Canada, and the United Kingdom. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
In evaluating its ability to recover deferred tax assets, we consider all available positive and negative evidence, including historical and current operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based on the level of losses, we have established a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized.
We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits in interest expense and other income, net, respectively, in the accompanying unaudited condensed consolidated statements of operations. Accrued interest and penalties are included in accrued expenses and other liabilities in the unaudited condensed consolidated balance sheets.
Recent Accounting Pronouncements
See Note 1, Organization, Business and Summary of Accounting Policies, of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
